Seeking the biggest tax refund is a smart strategy — but only if your return is lawful and accurate.
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Taking bad advice simply to increase your tax refund is one of the biggest mistakes you can make. Here are five refund “boost” tips that can backfire, according to tax experts.
1. Claiming Credits You Don’t Qualify for
One of the surest ways to catch the attention of IRS auditors is by claiming credits that drive the biggest refunds, according to Phillip Zagotti, JD, certified public accountant (CPA), principal at North Star Law Firm in Houston and co-author of “Taxed: A Taxpayer’s Guide to Tax Defense and Resolution.”
If you are advised to seek credits you don’t qualify for, you’ll face stiff punishment.
“Claiming a dependent who doesn’t meet the residency test, or education credits for a student who isn’t enrolled half-time, can result in a two-year ban from claiming the [earned income tax credit],” Zagotti told GOBankingRates. “And that costs you far more than one inflated refund.”
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2. Inflating or Fabricating Schedule C Business Deductions
Every tax season, people are told that starting a business is the “key to a bigger refund,” Zagotti said. The result is that “many claim a side hustle they barely operate and load it up with personal expenses disguised as write-offs.”
The problem is that the IRS uses statistical scoring models to flag returns with deductions that are out of proportion to income.
“If you can’t back it up with documentation, you’re looking at a 20% accuracy-related penalty on top of the tax you owe,” Zagotti added.
3. Claiming Undocumented Cash Donations
Tighter IRS standards in recent years have made small cash donations a lot harder to deduct, according to a blog from Intuit TurboTax. If you get a tip to claim undocumented cash donations, be wary.
“The IRS expects that you’ll be able to document all donations made to charity, and can disallow them in an audit if you’re unable to do so,” TurboTax explained. “Throwing some money into the collection plate, or into the jar at work for a charitable cause, risks being taken away if the IRS examines your return closely.”
4. ‘Forgetting’ To Report Income
As Zagotti noted, the IRS has an automated matching program that can catch discrepancies between the income you report and the income they have on file. If you’re caught underreporting income to get a bigger refund, you’ll owe the tax plus penalties and any interest backdated to the filing deadline.
“Leaving off freelance income or crypto gains doesn’t boost your refund, it just puts you on a timer,” Zagotti said.
5. Taking Tax Advice From TikTok or AI Chatbots
Social media and AI tools have “created a wave of confidently wrong tax advice,” Zagotti said. “These sources don’t know your facts, don’t understand the current law and can’t represent you when the IRS sends a notice.”
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This article originally appeared on GOBankingRates.com: 5 Refund ‘Boost’ Tips That Backfire, According to Tax Pros
